LooksRare Volume Soars, Crypto vs IPOs, & Managing Merge Expectations

APR 25, 2022 • 8 Min Read

Joo Kian + 6 others

DISCLOSURE: DELPHI VENTURES HAS INVESTED IN ETH AND LUNA. MEMBERS OF OUR TEAM ALSO HOLD CVX. THESE STATEMENTS ARE INTENDED TO DISCLOSE ANY CONFLICT OF INTEREST AND SHOULD NOT BE MISCONSTRUED AS A RECOMMENDATION TO PURCHASE ANY TOKEN. THIS CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND YOU SHOULD NOT MAKE DECISIONS BASED SOLELY ON IT. THIS IS NOT INVESTMENT ADVICE.

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Chart of The Day: LooksRare Growing Fast

  • Note: to filter out wash-trading volume, LooksRare volume in the graphic only accounts for volume from >0% royalty NFTs.
  • LooksRare has gained significant organic volume recently, reaching a new high of $28M over the weekends. LooksRare’s daily volume now matches 14% of OpenSea’s daily volume encroaching on OpenSea’s market dominance.
  • LooksRare received a lot of flack when it first launched as most of its volume was generated from wash-trading 0% royalty NFTs to farm $LOOKS rewards. At its peak, wash-trade volume accounted for 99.5% of all volume on LooksRare. However, ever since rewards were halved, the wash-trading volume has reduced significantly, as it has become less profitable to wash-trade.
  • There are a few catalysts for this event:
    1. Gem.xyz, an NFT Marketplace Aggregator, has been gaining traction, and users of it are platform-agnostic. NFT buyers will always go for the cheapest available option, regardless of the platform. Update: OpenSea announced today that it acquired gem.xyz.
    2. As LooksRare gains reputation, sellers are incentivized to use LooksRare as its 2% fee is cheaper than OpenSea’s 2.5% fee. Furthermore, sellers also receive $LOOKS tokens for sales.
    3. LooksRare now allows you to earn $LOOKS by listing on their platform. Check out this thread on LooksRare’s NFT Listing Rewards.
  • For more on Looksrare, Delphi members can see our previous NFT Insights here.

Charting Price Clues, Liquidity, & Market Musings

[Excerpt from Apr. 21st Market Insights]

  • Anyone who’s hung around the cryptoverse long enough – or had to cough up money this week to pay taxes on last year’s gains – knows there are material differences in how countries regulate crypto assets. The longstanding gorilla in the room for many has been the SEC, whose primary job is to regulate securities markets and “protect investors” from dubious activities like market manipulation, fraud, etc.
  • But even highly-regulated markets like public equities suffer from their fair share of pitfalls. Just look at the performance of many overly hyped IPOs recently, which have seen their stock prices crater despite all the pre-public enthusiasm surrounding them. The Renaissance IPO ETF, which tracks a portfolio of the largest, most liquid, newly-listed US IPOs, is down over 35% YTD. Makes ETH’s 18% decline this year a bit easier to swallow.

  • Part of this underperformance is a function of unfavorable market conditions, no doubt. But the same could be said for any market, especially one like crypto that’s still in its infancy. No matter how rigorous the pre-IPO process is, there’s always going to be the risk that a company fails or can’t execute on its vision or has to pivot their entire strategy because what they’re doing simply isn’t working. Just because a company chooses the traditional path to go public doesn’t “protect” average investors from aping into hyped-up names with serious downside price risk.
  • Many of these companies were built by founders with big dreams and ambitious visions, just like those we find in crypto. Many of these companies have earmarked the proceeds from their offerings to double down on their business and invest in new growth initiatives, just like we see in crypto. Not every protocol issuing a token or seeking some kind of liquidity event is doing so just to help their founders or investors get rich. Liquidity can unlock a lot of value for a protocol if pursued for the right reasons, just like it can for a growing company.
  • Investing in any market has its risks. At a certain point, we need to put more responsibility on investors to make their own decisions about where to put their own money. We also need to give investors access to tools (like hedging instruments and derivatives) that allow them to structure their own protection if they seek it, which is an area the U.S. is slacking. Maybe this last rant is misplaced, or maybe we’re just sick of using VPNs. Either way, we believe democratizing access to investment opportunities is a huge step forward, but it should also come with similar accessibility to proper investment tools too.
  • For more, Delphi members can see the latest Market Insights here.

Managing Expectations Heading Into “The Merge”

[Excerpt from a Delphi Pro Report]

The Merge: PoW -> PoS
  • While the nomenclature around the project has changed over the past few years, “The Merge” refers to the Ethereum mainnet transitioning from a Proof-of-Work (PoW) system to a Proof-of-Stake (PoS) system. This change will improve Ethereum’s energy efficiency, scalability, and decentralization. After The Merge, miners will no longer be needed to validate transactions, as that responsibility will shift to validators who have earned the right to participate by staking ETH.
  • In order for The Merge to be completed, the current PoW mainnet (i.e. ETH 1.0) will be combined with the Beacon Chain, introduced earlier under ETH 2.0, to create a new chain that utilizes PoS moving forward while maintaining the prior history of the Ethereum network.
Ethereum’s History & Roadmap
  • The Merge has been anticipated for several years now after repeated delays to the initial roadmap. The entire ETH 2.0 transition was initially expected to be complete at some point in 2021. However, the reality of the engineering required more time, as we’re still in ‘Phase 0’ essentially.
  • It’s important to note that even though Ethereum has suffered setbacks in this transition, it hasn’t been without good cause. There was crucial work being done to get in place the infrastructure required for Ethereum to successfully transition. At the time of writing this report, Ethereum is valued at over $380B and supports hundreds of other applications that require it to function. Not rushing such a monumental change is particularly important when you consider all of the value within the Ethereum ecosystem that would be negatively affected if something were to go wrong. In the graphic below, we’ve provided a more recent timeline of events, which we’ll contextualize in the following section.

  • Ethereum requires validators to propose blocks and validate transactions to operate securely under this new model. To enable this, a staking deposit contract was deployed on October 14th, 2020, allowing would-be participants to send in a required 32 ETH so that they could be added to the validator list. If a validator experiences downtime and/or proposes malicious blocks, this stake can be slashed by the network. This forms the security foundation of Ethereum’s move to PoS.
  • At this point in time, there is no way for validators to remove their staked ETH. While validators can opt-out of their duties this only prevents them from being slashed and they won’t be able to retrieve their locked ETH until another update to the chain is made post-merge. Meaning that even months after “The Merge” takes place, validators’ funds could still be constrained, possibly resulting in the biggest supply sink ETH has ever experienced.
  • Following the deployment of the deposit contract, Ethereum launched its Beacon Chain on December 1st 2020. The Beacon Chain didn’t alter anything about the Ethereum chain used today, but instead was the introduction of PoS into the Ethereum ecosystem. The Beacon Chain’s objective is to coordinate the network and serve as the Ethereum consensus layer post-merge.
  • Later on August 5th 2021, Ethereum underwent the London upgrade which included EIP-1559, this introduced a mechanism to burn ETH with each transaction. An in-depth dive into this burn mechanism can be read about in further detail here, however, we’ll touch on the important parts of it later in this report. The introduction of this burn mechanism was the first step in turning ETH into a deflationary asset, with The Merge taking further steps to ensure that this is the case.
  • The actual date of The Merge is still unknown, but based on the rate of progress and some expert opinions we expect to see The Merge occur around late Q3 or early Q4 of this year (2022). A go/no-go decision on performing The Merge or postponing it is set to take place on April 29th during the Ethereum All Core Developers call. If it is cleared to proceed, the real Merge would be planned for the aforementioned period. A detailed checklist regarding the steps that still need to be performed in order to complete the merge can be found in the Ethereum GitHub here.
Transitioning From Miners To Validators

  • The change from PoW to PoS will drastically alter Ethereum’s economics. Miners will be completely cut out of revenue generated by the Ethereum network and that value will be returned primarily to ETH stakers/validators in a few different ways.
  • For more, Delphi members can see the full Pro Report here.

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Joo Kian + 6 others